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A bitcoin crash or dip?

What to make of this cryptocurrency market?

It seems readers are only interested in hearing abut bitcoin or the foibles of women. In a bid for popularity without being pilloried, this article will stick to bitcoin.

First of the bat: if you are reading this to get an opinion of the future value of bitcoin, you can stop reading now. Anyone who tries to predict the price using mathematical techniques is a charlatan at best and an idiot in most cases (I suggest reading about how charting fails). Data from the past cannot be used to predict a true future price, if that exists, of something so new. At best you can predict some herding behaviour.

Exuberance

When something increases in value exponentially, drops, then increases again, it’s either an effective Viagra or ridiculous levels of volatility. A large volatility is bound to obtain loads of attention and in this respect bitcoin (or indeed other cryptocurrencies) is always in the news. At the time of writing this article (mid-January) the price of bitcoin is down double-digit percentages, and by the time this article is published it might be anywhere between one tenth and tenfold the price right now.

Price movements in company shares related to cryptocurrencies might shed a better light than the price movements of the actual cryptocurrencies. For example, Overstock is an e-commerce company that allows payments in cryptocurrency. We would therefore expect the share price of Overstock to fluctuate in tandem with bitcoin prices.

Shares in Eastman Kodak, the camera company, increased 60% in one day after they announced plans to issue a new cryptocurrency named KodakCoin. If you do not find that surreal, then you should hear about Long Island Ice Tea.

This company, that makes (made?) ice tea, announced in December that it will merge with another firm that is focused on blockchain technology, the technological basis of Bitcoin. Despite the sketchy details, it changed its name to Long Blockchain and voila! Its share price increased six-fold.

If you are still thinking there is no exuberance about cryptocurrency, then I am not sure what proof you need. Maybe to discover that JesusCoin and DogeCoin both really exist. There is also a Theresa May Coin, a Macron Coin, a TrumpCoin and a PutinCoin.

Is it irrational though?

Yes, yes, yes …some of it is. For example, Long Blockchain’s share price is simply a bet. If this technology is useful then its share price will be much higher, but there are no details to justify this immediate increase, bar a short statement and a change of name.

It’s enough to make me wonder whether changing my name to Dominic 'Blockchain' Cortis would increase right swipes on Tinder (probably not, given that women tend to be more rational than men).

However as discussed in a previous article focusing on whether property prices are in bubble territory, previous bubbles tended to have some wisdom of the crowd. For example, the dot.com bubble was based on the hype of how big the internet would be. As most of you are flicking through cat videos right now, you must admit the internet is useful.

There must be something about cryptocurrencies then? There must be a wisdom of the crowd.

My problem with bitcoin

But is the crowd always wise? After all, in the past a crowd chose Barabbas over Jesus, Hitler over the other guys and many, many terrible Eurovision songs. The public is not always right.

I do not own, and do not intend to own, cryptocurrencies unless they are needed, despite the potential of missing out on financial returns.

Cryptocurrencies were originally intended as a form of currency. Instead, they have become a speculative commodity.

Dominic 'Blockchain' Cortis can now state he is a cryptocurrency expert, despite never investing in them nor really understanding them – much like financial analysts who struggled to scrape past their mathematics O Level.

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